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Streamlined Skyworks increases focus on GaAs

Leading GaAs-based power amplifier manufacturer Skyworks Solutions dumps its non-GaAs baseband business in a move that should provide a major boost in profitability.

Woburn, MA, GaAs chip manufacturer Skyworks Solutions has ceased the operation of its baseband business unit with immediate effect.

The move, which does not affect the company's compound semiconductor operations directly, will result in a 10 per cent reduction in total headcount, equivalent to 425 employees.

The switch will, however, increase Skyworks' focus on advanced GaAs-based products for current cell phone handset applications, and emerging markets such as broadband wireless access.

Skyworks claims to have increased its worldwide market share for power amplifiers (PAs) used in cell phones from only 30 per cent in 2002 to 42 per cent currently.

Encouraged by this rapid pace of growth and increasing dollar content in phones through higher levels of integration and the development of BiFET components (see related magazine feature article), Skyworks has decided to focus squarely on this core business.

"We will partner with, rather than compete against, leading baseband suppliers such as Texas Instuments, Qualcomm, Freescale and Infineon," said Skyworks CEO David Aldrich.

"We are implementing a strategic restructuring to"¦realize our vision of becoming the global leader in semiconductors enabling mobile connectivity," Aldrich added.

Although the streamlining will reduce annual costs by nearly $70 million, the headcount reduction will result in a financial charge of up to $95 million through severance payments and shut-down costs.

Ultimately, the move will provide a massive boost to Skyworks' bottom line. Pro forma profit for fiscal 2007, in which the restructuring charges are ignored, should now be at least $0.55 per share, or double the estimate made prior to the restructuring.

How exactly that profit will be spent is not yet known, but it is possible that Skyworks is considering ways to increase its GaAs capacity to meet the expected increases in demand for broadband wireless connectivity.

It currently manufactures chips on 4-inch wafers in partnership with epiwafer foundry Kopin and a GaAs device foundry in Taiwan. Rumors of a switch to a 6-inch manufacturing platform have surfaced in recent months, but Skyworks' public comments have indicated that the company is set to continue with the smaller format for the foreseeable future (see magazine interview with Kevin Barber).

Investors reacted positively to Skyworks restructuring move, with stocks in the company rising nearly 40 per cent to $7 in early trading - despite a generally weak performance for technology stocks.

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